Licensing

A contractual arrangement in which the licensers patents, trademarks, service marks, copyrights, or know-how may be sold or otherwise made available to a licensee for compensation negotiated in advance between the parties. Such compensation may consist of a lump sum royalty, a running royalty (based on volume of production), or a combination of both. Licensing enables a firm to enter a foreign market quickly and poses fewer risks than setting up a foreign manufacturing facility. Furthermore, it allows parties to overcome tariff and non-tariff barriers of trade.